It is fair to say that the attempts to confront authoritarian populism head on have been met with mixed success. Ostracizing, applying the ‘fascism’ label, looking for Kremlin connections, and invoking liberal democratic values do not seem to be doing the trick. That shouldn’t be surprising, given that the existing social model is seen by large groups of voters as rigged and incapable of delivering on its promise of shared prosperity. Here’s a modest proposal: let’s change that and make sure the system works. I suspect that much of the appeal of loud-mouthed demagogues will then go away.
Of course, “it’s not the economy, stupid” is a common refrain among political scientists who are studying the drivers of support for populist movements. Especially on the political Right, the fault lines are not over economic policy, but rather over immigration, culture—questions of what it means to be American or French, or how many asylum seekers we should let into our countries, if any.
Yet the answers to such questions are arguably different when voters see the economy as a zero-sum game or as a game that has been manipulated to benefit a few at the expense of everybody else. Alas, a zero-sum view of the world might not be a bad approximation of what we have seen in the aftermath of the Great Recession. Even in countries that superficially appear to be success stories, such as Denmark and Austria, real incomes have not yet returned to their pre-crisis levels.
In the United States, where the recovery has been more vigorous (though the post-2009 growth rate was roughly half of the 1947-2007 average), labor participation of men has seen a dramatic decline. Among men between 20 and 64 years of age, the labor participation rate is lower than during the Great Depression, with 78.4 percent in 2015 compared to 88.2 percent in 1930 and 81.3 percent in 1940. The toll, as Anne Case and Angus Deaton showed, is not just economic but goes hand in hand with alcohol and opioid abuse, and deaths of despair.
On top of a lackluster economic performance, consider the optics, justified or not, of the bailouts extended to ailing banks in the United States or to insolvent governments in the Eurozone. Privatizing profits and socializing losses would rub badly against the grain of democratic capitalism in normal times. That it lead to popular outrage at a time of economic hardship was inevitable.
The good news is that the West can do better and we know how. The recipe for Western prosperity boils down to upward mobility, ‘market-tested innovation’, and creative destruction through which new ideas are translated into commercially viable products and services. What is more, similar to the Depression era, we now seem to be living at the dawn of a new era with an entire cluster of new technologies—from artificial intelligence, through genetic engineering, to renewables—waiting to be successfully commercialized.
Oftentimes, the hurdles are regulatory, as we’ve seen recently with the EU’s ban on genetically modified organisms, or the FAA’s ban on supersonic flight over the United States. In many cases, such regulation has been put up by special interests in order to benefit from economic rents. Brink Lindsey’s and Steve Teles’ new book, The Captured Economy, provides a helpful overview of the key issues, from financial regulation that contributes to an outsized financial sector, to overly generous copyright patent and copyright protection, occupational licensing, and zoning restrictions that prevent economically thriving communities from expanding. All of those not only dampen growth but also contribute to inequality, making the economic game effectively rigged.
That is not to say that all regulation caters to special interest, nor that no regulation is necessary. But regulatory capture is a real problem, as is the progressive inkling to use government regulation to fix all social ills. Besides rent seeking (illustrated by the bootleggers and Baptists parable) the over-reliance on regulation leads to a proliferation of rules that either do not pass the cost-benefit test or that jointly add to an opaque, complex system of regulatory ‘kludges’ that is extremely difficult to navigate.
A regulatory shake-up thus seems to be a necessary condition of the West’s regaining of economic health. Again, the point is not to restore an imaginary libertarian Nirvana through a bonfire of regulations but to make sure that bringing new ideas to market is easy, that reallocation of resources to new uses—including most importantly of labor and human capital—is as frictionless as possible and that economic systems are not synonymous with the ability to take advantage of complex government rules.
But is such an agenda politically feasible? Not in isolation. After all, a ruthless review of existing and new government rules on both sides of the Atlantic would threaten the special interests that are benefiting from the status quo. There is, furthermore, a downside to having more creative destruction in our societies—namely the destructive part. No matter how flexible we make our economies, there are real costs associated with losing jobs, changing professions, or moving to different cities and states. The fact that many communities are woefully unprepared for economic change, particularly coming from automation, has been adding to the grievances behind the current populist wave.
Hence the other side of the grand ‘liberaltarian’ bargain: a strong and generous social safety net, which will not let anyone slip through the cracks. Universal basic income (UBI) is technically, though not necessarily politically, the simplest way of achieving that end, providing every adult, irrespective of their characteristics, with an inflation-adjusted income. At the present time, governments in Finland and Ontario are conducting small-scale experiments involving UBI, although they are targeting the unemployed and people in need, instead of extending the income to a random sample of the entire population.
Would UBI be expensive? Of course, though not necessarily more so than the existing hodgepodge of social assistance and welfare programs it would replace. Furthermore, one should not think about its fiscal cost in isolation. The burden of spending, taxes, and debt has to be compared to overall income. A political bargain that increases government welfare spending—while also boosting the growth rate of the economy—might very well be worth it.
One reason why some thinkers on the center Right, including my colleague Charles Murray, advocate the idea has to do with UBI’s ability to reduce the individual cost of economic failure. The only way out of our economically stagnant present is for more young Americans and Europeans to take on risks, instead of playing it safe. But taking risks is difficult for people bearing large debt burdens and staring down rising living costs. It is symptomatic, for example, that start-ups in Silicon Valley are largely a domain of the relatively well-off who are able to cope with the area’s housing prices and can absorb the financial cost of failure.
UBI would not mitigate the problem completely but would reduce its magnitude by providing a basic cushion to everyone. The welfare reform enacted by Emmanuel Macron in France, extending unemployment benefits to entrepreneurs and self-employed people who have suffered a loss of income, is a modest step in that same direction, following the same basic reasoning.
But even if UBI does not deliver fully on its promise of incentivizing risk-taking and entrepreneurship—for many people, goofing off is and always will be far more attractive—its main benefit lies in building support for the pro-growth regulatory agenda, which would otherwise encounter a lot of resistance not only from the rent-seekers living off the current regulatory ‘swamp’ but also from ordinary people worried about being left behind by the modern economy.
The modern history of the West should be seen as a source of optimism. At its heart is the ability of our political systems to reinvent themselves through grand bargains, similar to the one proposed here, preserving the engines of economic prosperity and extending its benefits to ever broader swaths of the population. The extension of suffrage in the second half of the 19th century can be viewed through that prism, as can the creation of America’s welfare state in the New Deal years.
Instead of recoiling at the idea of a redistributive state, a grand bargain that preserves democratic capitalism while providing its benefits to everybody can provide a new agenda for the center Right and an alternative both to cozying up to intolerant nationalism and to ineffectual attempts to confront it directly. The success of this agenda will require leadership, both intellectual and political, which seems absent now, in Europe as in the United States. Let us hope we can find it before it is too late.